18 March 2008

Luxury brands target Malaysia

The relentless development of the retail sector in Malaysia continues. Passing almost unnoticed however is the proliferation of international luxury brands. Familiar international names such as Asprey, Giorgio Armani, TOD’s, Van Cleef and Arpels and so on, have all entered the local market in recent years, encouraged by the success of exclusive names such as Bulgari, Cartier, Hermes, Louis Vuitton, Rolex and other famous names already familiar to KL shoppers.

Unusually in Malaysia, KL’s newest mall, The Pavilion, is clustering its luxury boutiques into a high profile area facing Bukit Bintang. Globally, this clustering of stores is nothing new. For centuries stores have organized themselves into districts based on what they sell - think Saville Row in London (tailors), Faubourg Saint-Honore in Paris (designer boutiques), Deira in Dubai (jewelry), and so on. The cluster approach allows the rich and famous to be dropped off in front of the store, rush in and make a purchase that would make a small African country drool and then rush out into the safety of the limousine without having to rub shoulders with the rakyat.

With its double story street facing façade the luxury section or ‘couture precinct’ of the Pavilion is an exciting development in the evolution of the retail sector in Malaysia. But there is one thing missing from this development. That is a luxury Malaysian brand.

And as Malaysia moves from an Original equipment manufacturer (OEM) economy to an Original brand manufacturer (OBM) economy, the retail sector, where so many Malaysian OEM cut their teeth, should be at the forefront of this step up the value chain. Especially as according to the MasterCard Worldwide Insight report released recently, the value of the market for luxury products and services in the Asia-Pacific region will jump from US$83.3 billion last year to US$258.7 billion in 2016. Not a bad segment.

What’s more, there’s already a ready made market because the largest number of tourist arrivals to Malaysia is from ASEAN countries, followed by Japan and China with India and the Middle East not far behind. And the burgeoning middle classes from these countries are notoriously brand conscious.

This interest almost obsession with brands is likely to continue according to Radha Chada, author of “The cult of the luxury brand”. She believes that the Asian interest in luxury products is because of the massive changes - social, cultural, economic and political that have been affected by the traditional attitudes to who you are and where you are in the societal food chain.

She believes that over the past 50 or so years, many of the traditional cultural indicators of social standing in Asia – profession, family, clan, caste have been eroded by the onset of globalization, migration and education. Free of rigid social hierarchies, mass migration and the development of urban areas, more people are making money and making it faster. The way to differentiate oneself is by purchasing a luxury product that shouted, “I’ve got money, respect me.”

Displaying one’s status through outward appearances of rank and wealth is nothing new but Asians seem to have taken to it like the proverbial duck to water. And those LV bags, Channel suits, Jimmy Choo shoes aren’t simple female indulgences, they are part of a new world order that identifies the wearers position in society. Indeed, these luxury brands are a modern set of symbols that Asian consumers are using to redefine their identity and social position.

Japanese have been devouring brands for years (see sidebar). But what about China? According to the China Brand Strategy Association, 175 million Chinese people can now afford to buy luxury products. By 2010 their number is projected to reach 250 million.

Bentley, the iconic British luxury brand expects to sell 300 cars in China this year, up from 70 in 2003. Not bad considering each car costs over US$250,000 each.

So, with all this new found wealth in Asia, the time is ripe for the development of Malaysian brands. And the good news is, Malaysian firms know how to manufacture quality products. They’ve been doing it for years for iconic brands such as Boeing, GAP, Guess, Ralph Lauren and other well known global brands.

But developing a luxury brand is also like raising a family – it requires a long-term commitment and investment, attributes that don’t sit well with corporate Malaysia. It also requires limited production, value over volume, even with a successful line. It also requires quality, not only in production but also in marketing. Training of staff is key. Walk into the Cartier store in KL and the staff will assess you based on a number of pre-determined factors. Pass the test and they’ll offer you a bottle of champagne to anesthetize the pain of the purchase!

Ongoing research is also critical to the long-term success of the luxury brand. Back in 1837, when Hermes was building its brand, the founders lent new products to customers to get feedback on how the products could be improved. Zara applies the same tactics today. If a new line doesn’t sell, it is pulled off the shelves immediately and replaced with a new range based on customer feedback on styles.

One mistake many brands make is that they ignore existing customers, preferring to always acquire new customers. The successful luxury brands have an ongoing relationship with their best customers who become brand ambassadors and grow the family.

And for those who don’t think there is any money in luxury brands, think of Jimmy Choo, the closest Malaysia has come to a luxury brand. Six years after Jimmy Choo sold his 51% stake in his own company for US$25 million, TowerBrook Capital Partners recently paid more than US370 million for ownership of the iconic brand named after the charming cobbler born in Penang in 1961. And with annual sales that have grown since 2001 at a compounded rate of over 45% to more than US130 million today, the purchase looks like good value.

Another British based private equity group, Permira, paid US$3.5 billion late last year for the Valentino Fashion Group. This was one of the most talked about acquisitions of 2006 because although Valentino is a well respected brand in Europe, it does not have the penetration in Asia of say Giorgio Armani. This is reflected in the global sales of US$340 million for Valentino compared with US$2.1 billion for Giorgio Armani.

So, as the average tourist spends only 22% of his budget on shopping in Malaysia compared with 50% in Hong Kong and Singapore, the time is ripe for Malaysian firms to start building brands that can take pride of place alongside Canali, Ermenegildo Zegna, Jean-Paul Gaultier and Versace in places like the Pavilion, Star Hill and other malls in KL.

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If you are born a Van Cleef and have spent your adult years working for Cartier, you would have enough identity crisis for one lifetime. But the high jewellery adviser of the fabled house has also turned his hand to painting. He’s a Frenchman portraying Hindu mythology, a diamond man who depends on Swarovski crystals and silver ‘shokolat’-wrapping paper. Mon Ram! Hey Dieu. How confusing can you get.

No one would laugh at these ironies as heartily as the droll Olaf Van Cleef himself. He has invited three of us to dinner at the Taj’s Elephanta Suite, his Mumbai address every time I’ve met him in India since the early 1990s. The opulence begins at the elevator, from where a liveried minion escorts us down the wrought iron corridor of the Heritage wing. Inside, from amidst the storied flower arrangements and Jodhaa-grade brocade, our host emerges in designer bermudas, grinning wickedly.

I tease him that he now truly deserves to be called Podgy. I had used this adjective in the first piece I wrote on him. It had obviously hit a soft spot, for he has signed himself thus in all our sustained correspondence these past 15 years. He has always also prefixed this with ‘One thousand kisses’, which, like his story-telling, sounds much better said than read because of his French accent and gay expressiveness.

Both account for his heightened sensibilities, but thank insomnia for his actually taking up painting so seriously. “I wake up at two, and then what do I do? So I start.” From an open suitcase shrouded in a pristine hotel towel, he pulls out a portfolio, and presents a singularly bad piece of abstract art. But like a child he cannot hold his deception; he bursts out laughing, and brings out the real thing.

I’d seen the emailed versions, but the original is something else. It features the Hindu pantheon saved from death by oleograph thanks to his Western aesthetic. The classical tableau of Ram, Sita and Lakshman complete with a kneeling Hanuman, Vishnu on his Shesha, and his Narasimha avatar, Ganesh, and to my secular eye the most appealing, a painting in the Kangra miniature style with its Swarovski flowers. The austerity of the drawings (in three shades of black, with three widths of nibs, ranging from 2mm to 0.5mm) is compensated for by the ornamentation—shiny, profuse, painstaking.

There are 15 works on thick chiffon paper that sell at around a lakh each. He mentions the grammage but I miss it in the distractions of monkeys, tigers and parakeets in segueing pastels of pink, green and yellow, the dotted lines like serpentine ectoplasm, the Warli-inspired figures, and most of all the glittering mosaic of crystals and paper which could drive a magpie mad.

Olaf describes the art of gluing with greater passion than he speaks of his draughtsmanship. Legitimately so for the Swarovski adornments are set with the eye and precision of a Cartier tiara, the squares of coloured foil are as tiny and flimsy. I realise that adhesive exactitude is as vital as pigment precision. One learns every day in this profession, with the bonus of making friends being the cherie on the cake.

Olaf will exhibit at the Pundole Gallery in Mumbai, a city that has known him only as the Cartier man. ‘Shennai’, ‘Calcoota’ and ‘Pondisherry’ have been luckier, anointed as places where “the people are chic and cooltoored”, the two must-haves in the Van Cleef roster of acceptability. No, he does not want to exhibit in his native Paris or even London, “they will not understand.” So much for ‘India Everywhere’.

His own India story began long ago, a wonderland unveiled by Alice, his Russian Jewish grandmother, who first brought him here on holiday. The frail, eight-year-old was mesmerised by the sounds and colours of Crawford Market, which imprinted themselves in his mind as indelibly as the larger-than-life lady with her rings as big as cathedral domes.

A decade ago, we had talked of all this in his flat in the shadow of the Sacre Coeur, when still hadn’t been scarred forever by the loss of his Moroccan lover. Olaf had given him a red parakeet for Christmas, just before the younger man fell seriously ill, and they had named it ‘Pondi-Cherry’. Olaf reveres the Mother of the Aurobindo ashram.

This time he doesn’t draw upon his repertoire of Cartier stories, but presents us with verbal baubles from his recent travels, especially in the South. He despairs of being in an expensive hotel with no ‘hroom serveece’, of not seeing any elephants in ‘Pehreeyar’, of having paid more for ‘cah-da-mom’ in the Spice Village than in Fourchon, the French gourmet store.

Then, as Chef Hemant Oberoi’s last piece of culinary extravagance appears on the embroidered organza table-cloth, we dissolve in laughter over his description of Japanese tourists confronting the thali at a heritage resort in Chidambaram, totally flummoxed by the profusion of dishes and the utter absence of eating implements.

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Retailers have a particularly hard time engaging the customers that come in their stores. Most requests for help by a store's staff typically receive the answer: "I am just looking". Valiram was able overcome this and achieved an outstanding sale conversion rate of 75%. They did that by setting up a check in desk, forcing every visitor to be shown around by one of the sales people.

This is an ingenious and simple step that any luxury retailer can implement easily. It might force the store to add a few more salespeople, but I am confident that it will have a considerable ROI, as Valiram demonstrates.

About Me

I am a marketing strategist who has been involved in marketing and sales in Asia for 18 years.
I have developed marketing strategies for organisations involved in event management, financial services, tourism, fashion, agriculture, insurance, interior design and health and recreation.
In 2004 I co-founded FusionBrand, a Brand Consultancy headquartered in Kuala Lumpur
I have presented papers on branding in Malaysia to the government and private sectors.